He was presented ten different Investment options, which, he narrowed down to five with a total capital expenditure equaling $200 million. Upon analyzing the five locations, severance has decided to suggest three locations, The Barn, Gopher Place, and Remodeling of the Stadium to the Capital Expenditure Committee (SEC). The Barn promised the highest NAP compared to its low investment cost, and holds the highest NAP even at the worst-case scenario. The Gopher place also offered a high NAP with a low investment cost with the second highest NAP at worst-case scenario.
The Stadium Remodel yielded the highest NAP to Investment ratio while having the highest median Income rarest with the highest percentage of college graduates. These three combined show the greatest return for the investments. In comparison, the other two locations, Whalen Court and Soldier’s Square, had a high initial investment cost with risky returns. Severance further explained how these three options would greatly diversify Target’s portfolio and lower its risk while maximizing its growth In this Target Corporation Analysis.
Target is a strong performing company with about 1,400 stores across the country. It carries merchandising assortments ranging from food and commodities to electronics, toys and sporting goods. Target is a strong performing company with about 1,400 stores across the country. Target carries merchandising assortments ranging from food and commodities, to electronics, toys and sporting goods. Target’s business in comparison to its competitors focuses on the community and work environment, which allows them to tailor their product offerings, pricing, and branding to specific customer segments.
The following explains the comparison between Target and its two major competitors, Wall-Mart and Cost, to help better explain why Target must expand to the three locations. Business Model Comparison Target’s business model differs from its competitors, Wall-Mart and Cost, in several ways. Both Wall-Mart and Target do not offer memberships for its members, unlike Cost, which offers memberships. This allows Cost’s customers to purchase goods at a discount. However, the main differentiating factor Target is the core consumers it adversities towards.
Target aims to attract college-educated females with children who are more affluent then the typical Wall-Mart customers. Target emphasizes a store dcore that gives off the right shopping ambiances, unlike Wall-Mart and Cost’s, which are equivalent to warehouses with goods stocked up. In addition, the tastiness for Wall-Mart and Target get two different messages across: “Everyday, low prices” and “Expect more. Pallets. ” These two tastiness reinforce their core customer base: more upscale for Target and the average shopper for Wall-Mart.
The capital budgeting process at the Target Corporation is a very rigorous and strenuous process to get through. The Capital Expenditure Committee (SEC) brings together a team of top executives that met monthly to review all capital project requests, in order to approve or reject the projects. Each project typically takes between 12 to 24 months of development before it is presented to the SEC. Each project is assigned a real- estate manager within a specific geographic location who is responsible for the proposal from start to finish.
In addition, the real-estate manager is in charge of reviewing and presenting the project to the SEC. I feel as though someone with more in-depth knowledge with finance should be presenting and reviewing this information, such as a finance director or a project lead. The real-estate manager becomes too emotionally attached to the project while on it for 12 to 24 months. The real-estate manager should be charged with less responsibility and should mainly focus on the purchase of the property and obtaining the best piece of real estate in the area.
Wall-Mart and Cost’s capital budgeting process may be very similar with Target, but differs in a couple of ways. One is that because profit margins are so thin for these two companies that their capital projects may come under more scrutiny from executives and need more in-depth financial analysis to back up the investment. Another difference could be the strategy they are pursuing: Target is tortes in lower income communities because those consumers are always trying to get the cheapest deals.
Analysis of the Five CPRM Doug Severance has to present to the Capital Expenditure Committee which market Target should enter between the five CPRM options. The first option is the Gopher Place in a populated city with a favorable median household income. The Gopher place is a great market to act fast upon on since our major competitor, Wall-Mart, is expecting to add two additional locations near by. Gopher place also has the highest population growth rate (27% in last five years) and the second highest AIR (12. %) and worst-case NAP out of the five CPRM options, which, means that it has a great potential to grow and reach out to its market.
However, a disadvantage may be that because of the high density of Target stores in the area, the new location will take away 19% of sales from existing Target stores. The second option is the Whalen Court located in a highly dense foot traffic area. The Whalen Court is a rare opportunity in a high fashion appeal area with an upper median household income. With the highest expected NAP of 25. 9 million, the Whalen Court may seem like a great place to invest in, forever, with a staggering initial cost of 119. 3 million and its AIR falling on the lower end out of the five markets, it may not be a great investment choice.
The third opportunity is the Barn in a small rural area with the nearest Target being 80+ miles away. The advantages of the Barn are that the initial investment cost is the lowest out of the five at $13 million and has a high NAP of $20,500 and AIR rate of 16. 4%. Investment will penetrate to the small market and will eliminate customers from driving the long distance, however, the disadvantage is that the size of the project is airily small and the return may be smaller than expected. The fourth CPRM option is the Soldier’s Square in a highly populated area.
However, despite the high median household income and the percentage of college graduates, the low NAP of $300 and AIR rate of 8. 10%, as well as the number of Targets already located near by, tell us that the Soldier’s Square is not a great investment option. Lastly, the fifth proposed CPRM is the Stadium Remodel. The cost of refurbishing to a super store is at $17 million, which, to the NAP of $15,700 is not too costly. It also has a mid range AIR rate f 10. 80% and is a short-term project that is located in the highest median household income out of the five CPRM options.
Remodeling the Stadium will not only raise lagged sales, but also improve Target’s tarnished image. Severance should propose to the Capital Expenditure Committee that they should branch out to The Barn, Gopher Place, and Remodel the Stadium. The Total cost of the initial investment would be $53 million, which, when compared with the five Spar’s Investment to NAP ratios, these three combined show the greatest return for the investments. The Barn promised the sights NAP out of the five CPRM compared to its low investment cost, and holds the highest NAP even at the worst-case scenario.
The Gopher place also offered a high NAP with a low investment cost with the second highest NAP at worst-case scenario. The Stadium Remodel yielded the highest NAP to Investment ratio while having the highest median income market with the highest percentage of college graduates. Maximizing its growth. Conclusion The analysis of the five CPRM locations clearly shows that Severance must present The Barn, Gopher Place, and Remodeling of the Stadium to the SEC. Expanding in these here markets has the strongest explanation financially and will be most suitable for Target’s culture.
Many may see the three brands, Target and its competitions, as very similar. This is quite the contrary; Target aims to differentiate itself by aiming to deliver outstanding value, innovation, and unforgettable guest experiences, while Cost and Wall-Mart typically aim to build their warehouses only focused on sales. By breaking into the three locations focusing on its demographics, accessibility/ convenience, and the possible return in NAP, Severance is sure to convince the SEC group that these three are the best choices.
